In an interview with ET Now, Anirudha Dutta, Head of Research-India at CLSA Asia-Pacific Markets, gives his views on the Indian market and the biggest concern for it. Excerpts:

ET Now: What is CLSA India's current India view? Are you neutral on India or positive on India or do you think the Indian markets will continue to underperform?

Anirudha Dutta: Our India view right now is that, overall, we remain slightly overweight on the Asia portfolio. However, we also maintain that these are challenging times. India has not really underperformed many of the global markets this year. So, we believe these are challenging times and the markets will remain very volatile. I would have a more cautious stance on the markets going forward.

The recent run-up in the Indian markets is fairly similar to what we saw in the beginning of the year. Globally, there was risk-on trade and India was getting its share of that trade.

With last night's Greece election results, it seems that once again there will be a risk-on rally in the global markets and India will get its share of that benefit. Also, in the domestic markets, we are finding virtue out of the fact that the FM may move to Rashtrapati Bhawan and we will have a new FM. But given the overall slowdown in the economy, I would tend to be on the cautious side.

ET Now: At CLSA, what to your mind is the biggest concern for Indian markets: global environment, macro events or lack of policy action?

Anirudha Dutta: As far as market drivers are concerned, we need to keep a look at global news flow and the resultant funds flow. Lack of movement in policymaking has led to damage to sentiments in the corporate sector where fresh investments are concerned. From medium to long term, policy inaction is the biggest concern.

Markets can keep yo-yoing in the short term and you may see a positive up-move, but it is not really a cause for big cheer.

The current state of the Indian economy will also impact job creation and new employment generation. Consumer sentiment has weakened a bit over the last 12 months, although it has not fallen off the cliff. Today, your sister publication in the front page had a story about a leading IT company deferring campus hires by a few months. Such kind of headline will not help consumer sentiment.

So we need to be mindful of that. We need to restore corporate confidence, particularly in terms of investments. This would also help in removing the infrastructure bottlenecks in the medium term. None of these are short-term solutions.

In the short term, you could see some policy actions which would buoy up sentiments. Some of it is on the discussion table as well. Hopes have risen in some segments after the Trinamool Congress seems to be virtually out of the UPA coalition.

ET Now: You just talked about the political scenario. There are talks that P Chidambaram is going to get back as the finance minister. Do you think that is something that the markets would like?

Anirudha Dutta: I do not know what the markets will like. But Mr. Chidambaram is known as a man who gets things moving. Anyone who comes in will be a person who has reformist credentials, enjoys the confidence of the political bosses within the Congress party.

At the end, many of the decisions that need to be taken are political decisions. It is not just one ally who blocks every move. There has been a lot of difference in key issues within the Congress party itself. Those need to be sorted out to get things moving forward.

Diesel and LPG price increases are near-term measures. Land bill, for example, has been pending for some time. These decisions are not just stalled by alliance partners, but also due to strong difference of opinion within the Congress party itself.

ET Now: Given all the parameters, what is your sense on how equities are likely to shape up in the next 3 to 4 months? Do you think it will continue to be range-bound with trading rallies intermittently or we could see a significant scale up or down?

Anirudha Dutta: My sense is that the markets are in for a period where you will continue to see trading rallies. That is what will keep driving the markets up and down. It is unlikely to see a sustained market movement in any one direction in a decisive way.

As I said, global news flow will be very critical to this up-move, although we may keep getting excited about local news flow.

The other bit is also the economic data that comes out periodically. Our own sense is that in this calendar year second quarter, the macroeconomic data will be worse than the first quarter.

ET Now: So what is your 12-month price target for the Sensex? Are you somewhere working with the possibility that the Indian markets could retest December lows?

Anirudha Dutta: We have a 12-month price target or Sensex target of about 9-10% kind of an upside. This is essentially based on one year forward price earnings multiples. Currently we are somewhere about 12.5 or so and the 10-year average is 14.7.